When the economy is experiencing an inflationary gap,how can monetary policy affect real output and the price level?
A)An expansionary monetary policy can result in increased real output and an increased price level.
B)An expansionary monetary policy can result in increased real output and a lower price level.
C)An expansionary monetary policy can result in decreased real output and an increased price level.
D)An expansionary monetary policy can result in decreased real output and a lower price level.

Question

Quizplus · Accepted Answer

An expansionary monetary policy involves increasing the money supply which leads to lower interest rates, making it easier for consumers to borrow and spend money. This increase in spending can lead to an increase in real output as businesses try to keep up with the demand for their goods and services. However, this increased demand can also lead to an increase in the price level due to increased demand-pull inflation, resulting in higher prices for these goods and services. Therefore, an expansionary monetary policy can result in increased real output and an increased price level.

When the Economy Is Experiencing an Inflationary Gap,how Can Monetary